A Tuesday Fisking

I enjoy reading the blog A.M. in the Morning, although I doubt the author, Ana Maria, and I would agree on much other than what day it is. She also is a diary writer for the Daily Kos, a left-of-center political blog, which is where I saw this post about a guy self-financing some kind of documentary film project on Hurricane Katrina.   

What I found most interesting about the post, however, was a quote from Congressman Gene Taylor of Mississippi, which I reproduce below at the risk of once again drawing the ire of his policy director, Brian Martin.  Here’s the quote: 

"People say ‘Well, gee. How is it the flood program loses $19 billion the same year that the insurance industry collectively cleared about $60 billion?’ Well, it’s no coincidence. The tax payers paid bills that the insurance companies should have paid."

Now, I have nothing against Gene Taylor, he looks like someone who fights hard for his constituents, but he seems to have developed a kind of tunnel vision as he pursues his multi-peril insurance bill that would make taxpayers responsible for federal wind insurance as well as the messed-up flood insurance program that Congress can’t seem to fix.  So what I’m saying here is this quote needs Fisking. 

What has the fact that Congress, which includes Taylor, can’t create a federal flood program with reserves and real actuarially sound operating procedures got to do with insurance industry profits? The National Flood Insurance Program owes $19 billion to the taxpayers because Congress makes it subsidize certain risky properties, many of which get flooded again and again and again. Its premiums are adequate to cover a normal year’s losses, but the program does not operate with any concept of reserves, meaning the taxpayers are the reserves. 

What Taylor implies is that the $19 billion NFIP had to borrow from the Treasury to pay flood claims was so big because insurers didn’t pay covered wind damage and instead paid out flood insurance damages through the Write Your Own program.  You can either do some quick math or read about some of the cases to see that this doesn’t make sense across the board.  Take a well-known example, the destruction of the home of Sen. Trent Lott by Katrina.  He had a federal flood policy for the maximum $250,000 and federal contents coverage of $100,000.  He received the entire $350,000.  But his home was worth more than $350,000.  He claimed State Farm failed to pay him wind damage he was owed (his lawsuit was eventually settled on undisclosed terms).  If this is true, it does not amount to a transfer of private insurer wind payments to federal flood payments unless the damage Lott suffered from flood was actually less than $350,000.  

How do we know his flood damage was at least $350,000?  Well, he said it was when he accepted the check, and let’s presume the man is telling the truth.  (By the way, some months back Lott said he was going to keep kicking insurance company fanny until the Reaper taps him on the shoulder — but he must have sprained his kicking leg because I’ve hardly heard a peep from Lott lately, much less seen any insurance tails getting kicked by him).  In fact, everyone who accepted flood insurance checks said their home was damaged by flood at least in that amount.  So preliminarily, if what Taylor says is true, those people did not tell the truth.  I don’t mean this to be accusatory, it simply is the logical conclusion of the Taylor paradigm. 

In addition, where is the proof of what Taylor says?  He has been harping on this point for more than a year, with Congressional investigations going on, and last I saw, Brian Martin says there is evidence of "dozens" of cases of improper wind-water payment transfer.  Dozens? Dozens don’t add up to no $19 billion deficit!  In the mass of thousands upon thousands of Katrina flood claims, dozens is more likely attributable to errors on claims forms because adjusters were watching All My Children while filling them out.

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